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Why the public-private partnership model has failed in India


ARINDAM CHAUDHURI | New Delhi, February 7, 2013 13:56
Tags : Public-private partnership | India’s infrastructure | Chennai airport | Airports Authority of India | Vadodara-Halol Toll project |

Indian policymakers had been daydreaming all along that the public-private partnership (PPP) model could solve all the infrastructural deficiencies of India – a clear case of vision that had turned into wishful thinking. In reality, the supposedly resounding thrust on PPP has backfired and has even choked the prospects of this model. It is true that there is promise in the model, which had raised the hopes of the nation, especially in the areas of mega-infrastructural development projects. The entire nation had started to envision our metros becoming the equivalents of Shanghai or New York in the years to come. And why not? The drumbeats and glitter associated with the PPP model have been quite profound. If we compare the beaming airports of Delhi or Hyderabad (built through the PPP model) to the shoddy government achievements showcased in the quite ordinary looking Chennai and Kolkata airports, the point does gets proved.

Against India’s poor infrastructural backdrop, PPP had been exponentially scaled up in the last ten years under a blind faith that it would produce nothing short of a miracle. Private participation has been consequently rising in PPPs in sync with government’s mission and policy. In the 11th Five Year Plan for example, the government’s estimation of investment on the country’s infrastructure between 2007 and 2012 was pegged at $320 billion. In this context, the World Bank had earlier assessed that as much as 20 per cent of this could be sourced through PPPs. Astonishingly, the figure rose to 37 per cent with the major contribution coming in the telecom sector.

On hindsight, everything may seem good; but then, a deeper scrutiny reveals how PPP projects are getting stalled and delayed. What get missed in the larger picture are the latent problems that are getting accumulated beneath the surface. No doubt, the PPP model has constructed numerous state-of-the-art infrastructure projects, but they are still inferior in comparison to the output that developed nations have been achieving through the same model. The inherent curse of red-tapism and power struggle between different agencies as well as between the private sector and government are looming threats for the prospects of the Indian PPP model. Add to this, the inevitable scenario of corruption and resultant artificial price hike of the resources that are gradually making PPP an unviable business model.

For example, in the case of the new Chennai airport, the tussle between Airports Authority of India (AAI) and the private consortium on controlling rights has become a case in point. The impediments faced while inaugurating the new Chennai airport throw open more questions than answers. The government’s decision to hand over the terminals to private parties has made the AAI extremely dissatisfied because they were and are striving for having a complete control! Further, as mentioned above, the ubiquitous red tape played its usual role in delaying the project that consequently failed to meet deadlines not once or twice but over a dozen times in the last four years. Like I said, this one case study of the mismanaged show at the Chennai airport more or less is symbolic of the problems that encompass the entire PPP domain across the country. And running parallel to this, corruption has no lesser a role to play either. From power companies to telecom giants, wherever there is involvement of private companies in sync with the government, the unholy trail of corruption can be seen decaying the best of models.

The Vadodara-Halol Toll project suffered due to mistaken traffic projections, due to which proposed government incentives were stripped off from the project, thereby raising both policy and revenue risks for the involved parties. The Delhi-Gurgaon expressway was a victim of mammoth red-tapism where the lack of coordination of more than 15 civic bodies whose approvals were necessary came out in the open in the shabbiest manner possible. In the same lines, the Karnataka Urban Water Supply Improvements project suffered due to continued lack of proper coordination between three bodies associated with the project. The Delhi Airport Metro Express was shutdown for 6 months when its operator Reliance Infrastructure pointed out cracks that had developed on its metro pillar structures. Then followed the typical blame game with the involved parties blaming each other for the faults. So much so that Reliance even went on to claim damages for losses incurred due to the closure of the project. Delhi Metro authorities also claimed that they had had to ‘reject’ an offer from Reliance to quit the whole project due to “financial non-viability”. Such wayward grandstanding and brinksmanship aside, even as the Airport Metro Express was reopened last month, the high-speed corridor envisaged earlier was debarred by the office of CMRS (Commissioner for Metro Rail Safety) that reduced the speed limit to a mere 50 kilometers per hour. Talking about railways, the two Dedicated Freight Corridor (DFC) lines that were targeted to be completed by 2017 are also currently stuck up due to land acquisition issues, lack of funding tie-ups and re-tendering of construction contracts, and other similar problems. The Dedicated Freight Corridor Corporation of India (DFCCIL) has apparently been able to acquire only around 70 per cent of the total land required for the corridors! Moving on to another area, the National Maritime Development Plan (NMDP) that involves 390 projects (worth over Rs.1,000 billion) has been awaiting environmental clearances; and subsequently, more than 80 per cent of the listed projects are on a standstill mode.

The stalled/delayed/off-track PPP projects list is a long one and ever expanding. Most of the operators jumped on to the PPP bandwagon due to cheaper inputs like energy and fuel (which are under government control) but then, they have later found the entire project financially unviable due to delays in land acquisition and other bureaucratic clearances – issues that have skyrocketed costs in various PPP projects to levels that have negated the advantage of all subsidized inputs! A simple glance over the Ease of Doing Business report by the World Bank would be enough to gauge the predicament – we rank a lowly 132 out of 185 countries surveyed!

However, the problems perhaps don’t lie with the dynamics of the model but more to do with the dynamics of India’s political and economic settings. For instance, in China, the consequent results of the PPP model are different and efficiently profitable for the parties involved due to the abovementioned political and economic settings being conducive to the same. China’s efficient bureaucracy, fewer corruption cases, zero or minimal red tape and cheap resources make them a benchmark case study for understanding PPP projects. Resultingly, numerous SPVs (Special Purpose Vehicles; corporations set up to manage PPP projects) are efficiently bolstering the rapid growth and success of PPP projects in that country. By 2015, it is estimated that more than half of the Chinese population would reside in urban centers, a feat that seems decades away from India. The bottom-line of China’s success in building world class infrastructure is that they provide clean, hassle-free, uncomplicated, and prompt governance. These clearly cannot be expected in India, a nation which is the epitome of corruption. In such a scenario, the Build-Operate-Transfer (BOT) model that the Delhi Metro has followed is perhaps the only way to ensure sustainable standards and quality over the long run in India. Delhi Metro has been a case in point, but then, it is not making money the way a private player would have wanted to make for business viability. This is where we need to follow a bit of the Western model too! As I said earlier, in the current scenario, the State must singularly start building most of the projects (thus, dodging the public-private coordination delays that may create hurdles) as they do in China; and later, they should auction the same to private players for efficient management and effective service delivery, the way they do in the US.

In summary, if we really need the model to work, then India has to internalize lessons from America and China in implementing the same – this is the only magic that can make the Indian version of PPP work!

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Issue Dated: Feb 5, 2017